1. Elements of Negotiability What makes a check negotiable?
A check or a share draft is an order, payable on demand to make payment, or a negotiable instrument.
A negotiable instrument is a written order or promise a demand
“Negotiable Instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(2) is payable on demand or at a definite time; and
(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
--§ 3-104(a)
A promise or order is payable on demand and payable at a definite time.

2. To be negotiable a check or share draft should contain the following:
Date
Payee
Amount
Signature
Financial Institution
MICR Encoding Numbers

3. Date: Every check or share draft should have the current, definite date.
Payee: Every check or draft should contain the words “Pay to the order of.”
Amount: A check or draft must be made out for a definite amount of money.
Postdated: Those checks or share drafts that have been dated ahead should not be accepted for negotiability until the date is reached or past. However, checks not written on MEMBERSFIRST CREDIT UNION may be accepted one day in advance because they will not be processed through the bank until the following day.
Stale dated: Those checks or share drafts that have been dated 180 days prior to being presented for deposit or for cash. Some negotiable instruments will have wording on them stating a time limit, such as “void after 60 days.” A check or draft this old is not negotiable and must be rewritten.
However, these checks can be accepted as collection items, meaning that their value or validity cannot be determined by the Credit Union. They must be processed through the banking system and funds must be collected by the Credit Union before the member can be given credit.
Payee: Every check or draft should contain the words “Pay to the order of.” These words indicate a member’s order to their credit union and/or bank to pay money on demand to the payee.
Amount: A check or draft must be made out for a definite amount of money. The amount appears in two places and must be noted in figures and words. The amount in both the words and figures must agree.

4. Signature: must be genuine and authorized.
Financial Institution: must be indicated clearly on the face of the check
MICR Encoding Numbers: Includes the transit routing number (ABA number), account number and check number
Signature: The signature of the drawer, or maker of the check or draft, must be genuine and authorized.
Financial Institution: The name of the drawee, or paying bank or credit union must be indicated clearly on the face of the check.
MICR Encoding Numbers: The transit routing number or ABA number encoded in magnetic ink at the bottom of the check or draft, along with the account number and check number. The ABA routing number enables machines to route the check(s) to the proper financial institution
Note: If the MICR line is not present at the bottom of a check then these checks must be handled manually and sent for collections
Note: If any changes have been made to the check or draft since it was written, the person making the changes initial the changes, or it is not negotiable. It is best to check with the head teller if and when changes have been made on the check or draft.

5. If one of these elements are missing, the check
should not be negotiated!
If there is a break in the routing number, the check will not clear through the federal reserve system. The routing number should contain 9 digits.

6. Dorothy Norwood 1525 Dorothy Norwood 222 Anhouster Drive
Anywhere, GA
/2611
Date
06/30/04
Sears Dept. Store
$150.00______
Pay to the order of
Written Amount
One Hundred Fifty and 00/100**************
MEMBERSFIRST_
Credit Union
Decatur, Georgia 30033
Dorothy Norwood
Signature of Maker
To determine what the numbers mean on the checks you handle, look first at the fraction. Almost all checks have a fraction at the top, right side of the check (Some very few do not-the validity of the number then can be determined from the MICR line at the bottom of the check.) The fraction form of the routing number is shown as a multi-digit fraction with a hyphenated numerator (on the top) and a three or four digit denominator (on the bottom).
The first set of numbers in the numerator is the City/State prefix which tells you the geographical location of the bank and the second set of numbers in the numerator identifies the actual financial institution and will be the 5th-8th number in the routing number on the MICR line
The bottom of the fraction (the denominator) is the Federal Reserve District. The denominator will also be the beginning numbers of the routing number on the MICR line. Most of the time if there are leading zeros in the MICR number, the leading zero(s) in the MICR number will not appear in the fractional form of the number. But it must appear in the MICR number at the bottom of the check.
The routing number should always be 9 digits inside the routing number brackets. If the routing number on the MICR line does not contain the nine digits the check will not clear through the Federal Reserve System of the US
These details will assist you in determining if a check is valid.
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7. Endorsements An endorsement is nothing more than the
Signature of a payee on the back of a check
It serves to transfer ownership of the check
It is an implied promise that the check is genuine (not forged or fictitious)
It guarantees all, if any, previous endorsements
An endorsement is nothing more than the signature
of a payee on the back of a check. Making sure a
check is properly endorsed is more complex, and
subject to specific guidelines. An endorsement has
three primary functions:
It serves to transfer ownership of the check.
It is an implied promise that the check is genuine (not forged or fictitious) and will be paid according to the original intent of all parties.
It guarantees all, if any, previous endorsements.

8. Types of Endorsements
Blank
Restrictive
Special
Conditional
Qualified

9. Blank Endorsement
The mere writing of the payee's name on the back of the check
Ima Member
This is most common when checks are presented to be cashed or deposited and specifies no other party than the endorsee.
Ex. The check is payable to
Ima Member and she signs the
check on the back: Ima Member

10. Restrictive Endorsement
This type of endorsement restricts the right of the party to whom the check is endorsed
Ima Member
For Deposit Only
This type of endorsement restricts in some fashion the right of the party to whom the check is endorsed
Ex. Ima Member
“For Deposit Only”
Account Number
If the member writes for deposit only on the check, then wants to get cash back, the teller must deposit the check and the member will complete a source document for the cash back.
If the member writes “For Deposit Only MembersFirst Credit Union acct# ” then this check can only be deposited at MembersFirst in the account number on the back of the check.

11. Special Endorsement
Ima Member -Pay to the order of Precious Dollar
Transferal of the negotiable instrument to someone else.
What should be done next?
This specified party must endorse the check if it is to be further negotiated. Often called “signed over to” or third party check
Ex. The check is made payable to Ima Member.
Ima endorses the check on the back and
writes “Pay to the order of Precious Dollar.”
What should be done next?

12. Special Endorsement Now, Precious Dollar must endorse the check in
order for the check to be further negotiated
Ima Member –Pay to the order of Precious Dollar
Precious Dollar
Now, Precious Dollar must endorse the check in order for the check to be further negotiated
NOTE: Requires approval of a Head Teller, Supervisor or Manager.
AKA: third party check

13. Conditional Endorsement
Pay to Precious Dollar when she graduates
Requires something to be done before the check is negotiable
Rarely seen
Ex. "Pay to Precious Dollar when she graduates."
Requires something to be done before the check is negotiable
Rarely seen
Ex. "Pay to Precious Dollar when she graduates."
This type of endorsement requires something to be done before the check is valid
This is rarely seen and requires the approval of a Head Teller, Supervisor or Manager.
Ex. "Pay to Precious Dollar when he graduates."

14. Qualified Endorsement
Pay to the order of Precious Dollar without recourse
Ima Member
The endorser refuses to
Take responsibility for
the validity of the check
The endorser refuses to take responsibility for the validity of the check
Ex. "Pay to Precious Dollar without Recourse (signed by) Ima Member."
This qualified endorsement passes title to Precious Dollar, but relieves the endorser (Ima Member) of the general obligation to pay if the check is dishonest
Note: Requires approval of a Head Teller, Supervisor or Manager.

15. Endorsement Rules Single Payee Multi-Payee checks - AND - OR
Multi-Payee checks 
- AND
- OR
- No indication
Checks or share drafts payable to “cash”, “self”, “myself” or “bearer”

16. Single Payee Endorsement
The check is endorsed as drawn

17. Multi-Payee Checks
More than one name listed besides “pay to the order of”
May be payable…
Jointly
Alternatively
Ambiguously
Checks are considered to have multi-payees when more than one name is listed beside “pay to the order of.”
Check with more than one payee may be made payable jointly, alternatively or ambiguously

18. Multi-Payee And These checks are considered to be joint checks
Endorsement of each payee
Verify identification when cashing check
Member’s signature must be last on the back of check
Adhere to the following if a Multi-Payee check contains words between the names on the front of the check beside “pay to the order of”, such as:
And
The check(s) is considered to be a joint check and must be endorsed by all payees as drawn.
If the check(s) is presented to be cashed, each payee must be in person and their identification verified.
Our member’s signature must be the last endorsement on the back of the check as our member will be responsible for the check.
If the check(s) is presented for deposit, the check must be deposited into a joint account. If no joint account, the check must be reviewed and approved by a supervisor or manager.

19. Multi-Payee OR Either payee may endorse the check as drawn
The check(s) is considered to be an alternative check: either payee may endorse the check as drawn

20. Multi-Payee If the check does not state “AND” nor “OR”
or has a COMMA(,)
The check is considered to be ambiguous
Either payee may endorse the check as drawn and negotiate the check
Exception to the rule
If the check does not state “AND” nor “OR” or has a COMMA (,)
The check is considered to be ambiguous as to whether the check is payable to the payees alternatively
Either payee may endorse the check as drawn and negotiate the check
However, require all payees to endorse Tax Refund checks, Insurance checks, Settlement checks, and all checks that have the member’s name and a company’s name in the pay to the order of section of the check
Checks can be returned up to seven (7) years later. One reason could be if the check is not properly endorsed

21. “Cash”, “Self”, “Myself” or “Bearer”
The check belongs to whomever endorses the check on the back
To serve as a record of who actually received payment, and also as a receipt for the cash or credit, the check must be endorsed on the back of the check
Technically, the check belongs to whomever endorses the back of the check

22. Account Numbers
The member’s account number MUST be written on the back of each check and legible
Ima Member

23. Endorsement Ink Color
Effective January 1, In order to comply with Check 21 final rules. Endorsements and other financial institution data is required to be in black ink.

24. What questions do you have?